Oct. 21 (Bloomberg) -- Debt ratings for Indian companies
are improving at an unprecedented pace, helping attract the
world’s biggest fund managers to record bond sales.

Crisil Ltd., the Indian unit of Standard & Poor’s, raised
rankings of 253 local borrowers in the six months ended Sept. 30,
the most since it started business in 1987, it said on a
conference call yesterday. Crisil downgraded 111 borrowers. ICRA
Ltd., an arm of Moody’s Investors Service, upgraded 97 companies
and cut 62, the best ratio since 2005, data compiled by
Bloomberg show.

The credit quality of companies in India is improving as
earnings head for a record increase, attracting money managers
including Pacific Investment Management Co., Western Asset
Management Co. and Aberdeen Asset Management Plc, which oversee
a combined $1.8 trillion of assets, to their debt. Similar
ratings ratios for Brazil, Russia and China are even stronger,
Bloomberg data show.

“Debt inflows will remain strong thanks to the improving
creditworthiness of companies,” Manoj Swain, chief executive
officer at Morgan Stanley India Primary Dealer in Mumbai, a unit
of the New York-based bank, said in an interview. “The Indian
economic recovery is still in the early stage, and that means
corporate profitability will get even better.”

International investors have purchased $10 billion in
Indian rupee debt in 2010, more than the combined amount for the
previous eight years, according to the Securities and Exchange
Board of India. Prime Minister Manmohan Singh lifted limits in
September on overseas ownership of local corporate bonds to $20
billion from $15 billion and doubled the cap on government notes
to $10 billion.

Sales Boom

Indian companies have sold 1.53 trillion rupees ($34.5
billion) in bonds this year, up from 1.48 trillion rupees in all
of 2009 and the most since Bloomberg started tracking the data.
Local-currency debt sales climbed 42 percent to 14.6 billion
real ($8.7 billion) in Brazil and are lagging behind last year’s
amount by 25 percent in Russia, the data show.

“The credit outlook for Indian companies continues to be
encouraging,” Anjan Ghosh, head of corporate ratings at New
Delhi-based ICRA, said in an interview yesterday. “As long as
liquidity and risk appetite remain adequate, credit spreads will
stay low or contract.”

The difference in yields between AAA rated five-year
corporate bonds and similar-maturity federal notes has shrunk to
64 basis points from the all-time high of 413 basis points, or
4.13 percentage points, two years ago, Bloomberg data show. The
spread has narrowed by 23 basis points this year. The gap for
securities rated BBB contracted 83 basis points to 309.

Tata Raised

Tata Motors Ltd., the Mumbai-based owner of Jaguar Land
Rover, had its rating raised in August for the first time in
almost two years by S&P. The grade for Hindalco Industries Ltd.,
India’s biggest aluminum producer based in Mumbai, was boosted
by Crisil in September to AA positive. Yesterday, Crisil pointed
to construction, metals and autos as the industries with the
most upgrades.

Global money managers are pouring money into Indian assets
as company earnings rise, the currency rallies and yields climb.
The rupee has surged 6 percent against the dollar since August,
the best performer among Asia’s 10 most-traded currencies after
South Korea’s won. The dollar touched a two-year low of 43.98
rupees on Oct. 15 and traded today at 44.4 rupees, little
changed this week.

The yield on the 7.8 percent government note due May 2020
climbed seven basis points yesterday and rose one basis point
today to 8.15 percent, the highest level for a benchmark 10-year
bond in two years.

‘High Quality’

State Bank of India plans to complete its first bond sale
to individual investors two days earlier than the scheduled
closing date of Oct. 25 after receiving bids for 19 times the 5
billion rupees offered in the first day the securities went on
sale on Oct. 18, Chief Financial Officer S.S. Ranjan said by
telephone yesterday from Mumbai.

Western Asset Management Co. has been buying Indian debt in
dollars and rupees, Rajeev De Mello, the Singapore-based head of
Asian debt at the firm, said Oct. 19. “We like bonds of both
banks and companies in India,” he said.

Aberdeen Asset has been investing in India’s corporate and
government debt, money manager Kenneth Akintewe said in an Oct.
15 interview. Pacific Investment, known as Pimco, is buying
“high-quality” bonds in emerging markets including India,
Chief Operating Officer Douglas Hodge said in an Oct. 14
interview.

Commodity Risks

Credit-default swaps used to protect against losses on the
debt of nine Indian companies fell in the past three months,
according to data provider CMA. Swap prices dropped to 163 basis
points from 201 at the end of July for State Bank of India, the
nation’s largest lender, and to 165 from 169 for Reliance
Industries Ltd., the country’s biggest company by market value.
Swap prices typically decline when investor sentiment improves
and rise as it deteriorates.

Higher commodity prices and borrowing costs pose a risk to
creditworthiness in India, Raman Uberoi, Mumbai-based senior
director at Crisil, said on the conference call.

“Input costs are rising as commodity prices firm up and
the cost of funding too is increasing, following recent monetary
policy measures,” Uberoi said.

The number of ratings with “positive” outlooks climbed to
a three-year high of 3.8 percent of the total, Crisil said in a
statement yesterday. Those with “negative” prospects fell to
10.2 percent as of Sept. 30, from a record 16.7 percent a year
earlier.

Ratings Upgrade

Credit quality is improving across emerging markets. S&P
raised at least 19 company ratings and lowered two in Brazil
this year, while it upgraded 22 and downgraded five in Russia,
Bloomberg data show.

Moody’s boosted the Indian government’s local-currency
credit rating one level to Ba1, the highest non-investment
category, in July. That was the first increase since 1998 and
put India on par with Greece, Egypt and Morocco. India’s
foreign-currency debt rating held at Baa3.

India’s 10-year yield is the highest among the major
emerging economies except Brazil, where similar-maturity notes
pay 12.1 percent. Comparable securities offer 7.34 percent in
Russia and 3.61 percent in China and 2.47 percent in the U.S.,
according to data compiled by Bloomberg.

“India is the region’s highest-yielding market with
acceptable ratings,” Akintewe at Aberdeen in Singapore said.
“We are primarily focused on high-yielding assets in Asia and
have found the debt of India’s public-sector companies quite
attractive.”

Earnings for companies making up the Bombay Stock
Exchange’s Sensitive Index jumped 56 percent this year to 1,027
rupees a share and are poised for the biggest annual gain since
Bloomberg started compiling the data in 2000. The gauge may
climb to 1,140 in the next 12 months, analyst estimates compiled
by Bloomberg show. All members of the index that reported
profits this month beat forecasts, led by Larsen & Toubro Ltd.,
India’s biggest engineering firm, and Housing Development
Finance Corp., the largest mortgage lender.